When opposing parties differ in opinions, they opt for legal action to resolve the matter. Typically, it is the plaintiff who sues the defendant. A debtor declares bankruptcy when a creditor files a lawsuit against them for delayed payments or failure to pay. Debtors also act fast when they learn of an impending suit by filing for or declaring insolvency to safeguard their property.
If a creditor pursues a suit against a party that owes them money, it becomes challenging for the defendant to retain their property when the judge rules in favor of the creditor. So, when a debtor does not declare bankruptcy immediately after a lawsuit, the creditor engages in debt collection because there is no automatic stay. However, before the property is lost, the debtor can declare bankruptcy to prevent repossession. When you face a lawsuit from a creditor and want to declare bankruptcy in Roseville, you should speak to the Sacramento Bankruptcy Lawyer for insolvency services.
Parties that Can File Lawsuits
When an individual wrongs you, you can file a lawsuit against them. The parties that can file lawsuits are:
Creditors
Creditors commonly sue debtors when they cannot pay the money they owe. A lawsuit enables the creditor to recover the funds owed to them when the court orders repayment.
A creditor can choose to recover their funds through wage garnishment. Nevertheless, they will need a court order permitting your employer to deduct a particular percentage of your salary and pay it directly to the creditor.
Alternatively, the creditor can levy on your bank if the court grants them a money judgment. The ruling enables creditors to take debt collection action against you for what you owe. If you skip court or fail to adhere to the trial, the court will issue a default judgment, placing a levy on your bank accounts. You will not withdraw funds from the account, but the creditor will have access to it and can take money from the account towards debt repayment.
When you discover that your creditor plans to or has filed a lawsuit, you should move swiftly to the insolvency court to obtain an automatic stay, otherwise called a bankruptcy stay. With the protection of the clause, it is unlawful for any creditor to participate in debt collection. Therefore, your creditor cannot garnish your wages or block you from accessing your bank accounts.
When you have a dischargeable debt, creditors can bring a suit against you and recover the funds you owe because bankruptcy does not protect this type of debt. Non-dischargeable debts include:
- Spousal and child support debts.
- Student loans.
- Debt stemming from crime.
- Debts payable to the state or federal government due to taxes and court financial fines.
Also, when a creditor gathers proof to demonstrate that your bankruptcy filing is in bad faith and you can repay the debt, they can engage in debt collection activities. The Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) protects creditors seeking to recover their money. You risk complications under this Act when you declare Chapter 7 bankruptcy while you have a high average yearly income. The creditor can move the Chapter 7 case to Chapter 13, where you, the borrower, will develop a debt repayment program ranging from 36 to 60 months.
Besides, with this type of bankruptcy, the creditor can pick the forms of debt they wish to discharge. The BAPCPA makes it possible to lift an automatic stay, enabling them to collect debt even after you have filed for insolvency.
When you face a lawsuit from a creditor, dischargeable debts are protected and cannot be claimed until the creditor contests the insolvency and demonstrates to the court that your filing was in bad faith. If an insolvency court discharges a debt, the creditor can no longer participate in debt collection. Dischargeable debts include:
- Payday loans.
- Mortgage payments.
- Installment fees.
- Debts you owe your business if you are the proprietary owner.
- Credit cards.
Once the court discharges these debts, you cannot pursue them in a suit. As the debtor, the discharge relieves you of all debt obligations, and the creditor has no other option but to accept the court’s decision. Precisely put, a bankruptcy stay deters creditors from the following activities:
- Opening or moving ahead with a complaint against the debtor.
- Claiming the debtor’s property.
- Engaging in any activity that adjusts a lien attached to the debtor’s property.
An automatic stay shields a borrower while they declare insolvency. The 2005 BAPCPA protects creditors by revoking some of the rights debtors enjoyed under the 1978 Bankruptcy Reform Act. Today, creditors have protection from debtors declaring liquidation in bad faith or engaging in fraud. However, despite the debt situation, the debtor still enjoys protection that guarantees economic relief.
When you face a lawsuit before or after declaring bankruptcy, you should speak to an experienced bankruptcy attorney for federal court representation. If you fail to explore all the legal opportunities to safeguard your property, you risk losing them. The Bankruptcy Code lets you retain part or all of your assets while giving you flexible debt repayment options if you are ineligible for Chapter 7 insolvency.
When a creditor takes legal action against you, the debtor, it is because they are aware the law protects their effort or are oblivious to the existence of the bankruptcy stay. BAPCPA further protects creditors by requiring that you inform your creditor whenever you declare bankruptcy and obtain an automatic stay. That way, a creditor can file a complaint to prevent debt discharge.
When a creditor is causing you trouble with lawsuits, you must appreciate that multiple legal avenues exist that you can explore to protect yourself from actions by creditors that cause you unjustifiable hardships. Creditors only pursue legal action when they can demonstrate you are engaging in fraud.
Anyone can file a lawsuit against you if they have the funds to pay the processing fees. You do not want to be in litigation when declaring bankruptcy because it can be stressful. At the Sacramento Bankruptcy Lawyer in Roseville, we believe that creditors should not bury you when filing for liquidation. When a creditor files a bankruptcy suit, we will explain your rights and ways of protecting your property and assets.
Persons Pursuing Legal Action Against an Entity that Has Filed a Lawsuit
In the same way credit companies or lenders respect the Bankruptcy Code when pursuing individuals to pay debts, individuals must respect the Code when seeking legal action against companies. Whether the business declares insolvency under Chapter 7, 11, or 13, the bankruptcy stay protects them from any debt collection action. If the creditor keeps trying to collect what they are owed, they attract lawsuits for automatic stay violations.
Can a creditor navigate the bankruptcy or automatic stay?
Yes. Creditors can request that the court lift the injunction. However, the court will only lift the automatic stay if the lender can demonstrate with sufficient evidence that the bankruptcy or automatic stay is not playing its role and should be removed.
For instance, if a creditor is suing you, a company, and you declare bankruptcy the night before a scheduled eviction from a property, the creditor can argue that the liquidation was in bad faith and only aimed at preventing the eviction. If the creditor provides sufficient proof and the court lifts the automatic stay, your company will have no option but to leave the property in question as you no longer enjoy the bankruptcy stay protection.
Declaring insolvency is a lengthy and complex procedure with many ordeals like assets, properties, processes, fiscal affairs, type of debt, and the guidelines you should follow. If a creditor brings a suit against you, they seek to control your assets. If the court gives them the go-ahead, they will not hesitate to take the property. Therefore, immediately you learn of a lawsuit, you must contact your bankruptcy attorney for legal guidance and court representation to retain most of your assets after the bankruptcy.
Bringing a Lawsuit
If a creditor plans on bringing a complaint against an individual, they start by filing a writ and complaint in court. The legal document directed to the accused and stating the accuser and accused is the summons. It notifies the defendant of the party seeking legal action against them, the lawsuit number, and the court where the trial will happen. On the other hand, a complaint is a document containing the claim the accuser is filing against the accused and the money they demand to receive at the end of the case. These two documents give the defendant an overview of the reason for the lawsuit and the required action.
A lawsuit only takes effect if the defendant receives the summons, writ, and complaint. When physically obtained, the defendant has thirty days to file an answer with the court. The response addresses the accusations and allows the defendant to show that the allegations are false. The defendant can even opt to bring a counterclaim. If the defendant fails to file a response in thirty days, the judge issues a default judgment in the plaintiff’s favor.
After the Answer
When the accused responds to the complaint within the timeline provided under the law, the case moves to the discovery stage involving evidence collection. Both parties will have the chance to collect trial evidence. The step takes time because evidence-gathering consumes time.
Apart from gathering physical evidence, evidence collection involves witness interrogation to corroborate that the allegations are factual. During cross-examination, the conflicting party will have the same chance to find inconsistencies in their testimonies. They can also include an expert witness in the case to give expert testimony in an area the court is unfamiliar with.
After the discovery stage, the opposing parties can file pre-trial petitions when necessary, requesting the court address particular issues that could impact the trial. Pre-trial pleas include motions to suppress specific proof, a request for summary judgment, a request for the trial to happen in another court, or sometimes a request to terminate the lawsuit. Once this stage concludes, the case proceeds to trial.
The Trial
When the trial starts, both parties will have the chance to present their case in turn. The trial involves the presentation of evidence, witness cross-examination, and arguments for or against the lawsuit. After the proof is tabled before the court, the parties will make closing statements, and the court will retreat to evaluate the presentations made and come up with a ruling.
If the lawsuit's outcome is in the plaintiff’s favor, the accused will pay them the figure demanded in the case or whatever amount they agree upon. The payment is not made upfront. It happens through various methods over an extended period of time. Although the court decides the price, it is not responsible for ensuring the claimant receives the money.
Alternative Dispute Resolution (ADR)
Most lawsuits never end up on trial. You can resolve the matter with the other party outside court. If you cannot resolve the issue directly with the individual, you should explore ADR for a quick resolution in a more affordable fashion. ADR examples include:
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Mediation
If you want to avoid trial in a lawsuit, one of the ways you can resolve the dispute is through mediation. In this form of ADR, an ordinarily neutral third party speaks to the conflicting parties individually. The mediator, who plays the role of a judge in the mediation, helps the plaintiff or claimant and the accused reach a settlement or an agreement. Mediations are not always successful because the opposing sides can fail to reach an agreement. Under these circumstances, the lawsuit proceeds to trial.
Mediations can only be fruitful if both parties are willing to undergo the process and play active roles. It means the parties must be present for scheduled meetings and bring all the paperwork required in the suit. Also, the plaintiff must be ready to respect and listen to the defendant’s remarks, and vice versa, because the objective of the meeting is for the two parties to agree or settle the issue. Finally, mediation requires patience because the process can last a few hours, a day, or sometimes several days.
Mediation is not an official trial. However, the mediator must guide the process through several phases. The first phase is the opening remarks. The stage involves the mediator introducing themselves and making their opening remarks. The opposing parties will also introduce themselves and make their statements at this stage.
After the opening remarks, the accuser and defendant will discuss the issues raised in the lawsuit. It is an opportunity for parties to clarify questions or point out omitted details.
Once the discussions are over, the mediation moves to the private caucus stage. Here, the mediator speaks to each party privately and presents them with an offer to try and arrive at a settlement.
Finally, the matter moves to the conclusion stage. If the mediator convinces the opposing sides to reach an agreement, they will ask them to sign the contract containing the contract terms, and the mediation will be concluded.
The advantages of mediation over the trial are that it is quicker, more affordable, and can happen over Zoom without face-to-face meetings.
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Arbitration
Another type of ADR is arbitration. Like mediation, arbitrations are led by a neutral party known as the arbitrator. Like in a court trial, the opposing sides present their evidence to the arbitrator, who then deliberates on the evidence and issues a ruling. If the decision is binding, all parties must adhere to it, and a judge cannot review it. With non-binding rulings, the opposing sides are not bound by the arbitrator’s verdict and can fail to accept the terms, meaning the case proceeds to trial.
Normally, you will undergo arbitration if a clause in the breached agreement states any conflict should be resolved through arbitration and stipulates the arbitration process.
Arbitration is cheaper and faster than a trial. Therefore, if there is an impending lawsuit, it is best to try arbitration before the case goes to trial. If the arbitrator’s ruling is binding, a court cannot review the decision as it is final.
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Settlement
Lastly, if both parties in a lawsuit can arrive at a settlement before the trial, they can avoid a judge’s decision. The settlement involves a settlement conference presided over by a judge. The judge listens to attorneys from the opposing sides make their arguments for or against the lawsuit. The judge then presents offers and counteroffers, hoping the parties will agree. If the proposals are favorable and both parties agree on the terms, a settlement is reached, and the judge dismisses the lawsuit. Nevertheless, when no settlement is reached, the lawsuit proceeds to trial, or the judge can schedule another conference to allow the parties to bring fresh evidence.
A settlement is beneficial because a conference can be scheduled during a trial. However, you can save money and time by requesting a settlement before the lawsuit reaches the trial stage.
Find a Skilled Bankruptcy Lawyer Near Me
Lawsuits are stressful and overwhelming, primarily when you are representing yourself. Therefore, if you have just been notified of a suit or learned of an impending one, contact the Sacramento Bankruptcy Lawyer in Roseville at 916-800-7690. Our lawyers understand bankruptcy is a difficult decision, but lawsuits from creditors can prevent you from enjoying its benefits, so you should talk to us for legal representation services.
